Over the past several years gold has lost much of its value, not just in terms of price. While gold is down some $600 per ounce from the 2011 high and now down some 10% from the post-election high, this could just be part of the long term price fluctuations; it is after all still up over 100% from 2005 lows.
However, some of the other properties gold bulls have said make it a great store of wealth and an attractive investment over the years have also seemed to fade. Namely, it doesn’t seem to hedge against inflation, it is no longer an efficient or anonymous means of making payments (digital currencies such as bitcoin are usurping that role), nor is it likely to see any increased industrial applications.
In a recent article in MarketWatch Jeff Reeves adds 7 Reasons Gold Prices Will Crash This Summer, citing the current low interest rate environment in particular, predicting gold will likely lead to disappointing returns with the potential for a crash this summer.
Here is an excerpt.
Gold prices have been on a bit of a roller coaster since Election Day. After the presidential vote last November sparked a “risk-on” rally for U.S. stocks, gold tumbled from more than $1,300 an ounce to under $1,150 just before Christmas. That’s a more than 11% decline — all while the S&P 500 added about 8% to the upside in the same period.
By mid-April, the stock market was in a bit of a rut, and gold was creeping up on the $1,300 mark once more thanks to uncertainty in Washington, soft economic data and other trouble spots.
The strength was short-lived, however; gold recently logged its worst weekly decline of an already tumultuous 2017. So what’s in store next for the volatile precious metal?
Unfortunately for gold bugs, it looks like more weakness in gold prices. Here are seven reasons why:
- Stocks keep soaring:In case you missed it, the Dow Jones Industrial Average recently revisited the 21,000 mark and the Nasdaq Composite Index keeps hitting new all-time highs. Investors looking for a place to put their money right now are primarily looking at stocks — with good reason. Why would anyone trade equities for gold during a run like this?
- Investors have no fear:Despite the strong performance of U.S. stocks so far in 2017, it seems that all market pundits can talk about is “uncertainty.” But don’t confuse unpredictable voters around the world and gridlock in Washington, D.C., with a sense of impending doom on Wall Street. In fact, the CBOE Volatility Index — also known as the “fear index” — just hit its lowest level in 23 years. Gold thrives in an uncertain environment, but that is simply not the current state of things.
- Commodities are cooked:It’s not just gold’s “safe haven” status that is working against it . All commodities, from crude oil to base metals, have been in a tailspin lately. Specifically, the S&P GSCI Commodity Index is down by about 10% from its April highs as oil has suffered a severe sell-off at the same time gold has struggled. Also, continued fears of weak demand out of China have driven iron ore to a six-month low. Raw materials and commodities aren’t seeing a lot of good news on the pricing front, and gold is getting swept up in these troubles.
— The Option Specialist